Econ 1710 a - Study guides, Class notes & Summaries

Nominal vs Real Interest Rate (+ Equations)Nominal interest rate: the growth rate of your $ as quoted on the investment Real interest rate: the growth rate of your purchasing power Approximation: r(r) = r(n) - i Exact: r(r) = (1+r)/(1+i) - 1 Fisher equation: r(n) = r(r) - E(i) What does the Sharpe Ratio measure?It is equal to the risk premium of portfolio divided by standard deviation. It measures tradeoff between return and risk. Three properties of a normal distribution1) Symmetric ...

Hedge RatioNumber of stock shares needed to hedge the price risk of writing an option Hedge Ratio = H= [Cu-Cd] / [uS0-dS0], for calls [Pu-Pd] for puts Would you expect a $1 increase in a call option's exercise price to led to a decrease in the option's value of more or less than $1A $1 increase in a call option's exercise price would lead to a decrease in the option's value of less than $1. The change in the call price would equal $1 only if: (i) there were a 100% probability that ...

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ECON 1710 Investments I Midterm 1 Terms Q&A

Hedge RatioNumber of stock shares needed to hedge the price risk of writing an option Hedge Ratio = H= [Cu-Cd] / [uS0-dS0], for calls [Pu-Pd] for puts Would you expect a $1 increase in a call option's exercise price to led to a decrease in the option's value of more or less than $1A $1 increase in a call option's exercise price would lead to a decrease in the option's value of less than $1. The change in the call price would equal $1 only if: (i) there were a 100% probability that ...

Nominal vs Real Interest Rate (+ Equations)Nominal interest rate: the growth rate of your $ as quoted on the investment Real interest rate: the growth rate of your purchasing power Approximation: r(r) = r(n) - i Exact: r(r) = (1+r)/(1+i) - 1 Fisher equation: r(n) = r(r) - E(i) What does the Sharpe Ratio measure?It is equal to the risk premium of portfolio divided by standard deviation. It measures tradeoff between return and risk. Three properties of a normal distribution1) Symmetric ...